American Debt Slave State: Borrowing more to buy less due to raging inflation

Credit card balances are up 3.0% since March 2019, but CPI inflation is up 13%, LOL. Auto sales plummeted, but auto loans skyrocketed. You guessed it, ridiculous price hikes.

By Wolf Richter for WOLF STREET.

Credit card balances grew 1.9%, non-seasonally adjusted, to $1.036 billion in March from February, according to today’s Federal Reserve. Compared to three years ago, March 2019, the last March before the pandemic, it was only 3.0% more.

In other words, credit card balances are now just 3% higher than they were three years ago, after three years of inflation, including rampant inflation over the past 12 months that has skyrocketed the prices of almost everything consumers buy with their credit cards has driven.

In the three years that credit card balances have increased by a total of 3%, CPI inflation has increased by 13%. In other words, even credit card debt can’t keep up with this raging inflation, LOL, and that their credit card debt, the most expensive debt, grows at a slower rate than inflation over the longer term is a good thing for the American debt slave for once:

In the chart above, notice how consumers paid off their credit cards and other revolving credit during the first 12 months of the pandemic and then started recharging, gradually returning to nominal levels, but never catching up with inflation and a “real ” Base.

Seasonal adjustments galore.

Consumer spending is very seasonal, as is credit card use. Balances peak in December each year and fall in January and February. Massive seasonal adjustments are used to compensate for this. In March, these seasonal adjustments added $62 billion to revolving balances, a seasonally adjusted 2.9% increase from February to $1.097 trillion.

This chart shows actual revolving balances (red line) and seasonally adjusted revolving balances (green line):

Auto Loans and Leasing in the first quarter — this is quarterly data, not monthly — rose 1.6% from the fourth quarter and 7.6% year-on-year to a record $1.34 trillion, according to today’s Federal Reserve.

This surge in auto loans and leases came amid a slump in new vehicle purchases and a decline in used vehicle purchases, accompanied by price increases.

  • The CPI for used vehicles rose 35% year over year in the first quarter.
  • The CPI for new cars increased by 12.5%.

These ridiculous price hikes have had the bizarre effect of causing consumers to severely scale back their vehicle purchases but borrow far more to fund them:

The majority of its outstanding auto loan balances stem from new vehicle purchases, not used vehicles, since they are much more expensive — the average transaction price for new vehicles was about $47,000 in the first quarter.

But first-quarter new car sales plummeted 15.8% year over year and 17.7% from the first quarter of 2019 to 3.28 million vehicles, the worst first quarter since 2011 and right back to where it was in 1979. This was due to semiconductor shortages, supply chain chaos, production delays, inventory shortages and near-empty dealer lots.

The number of used cars retailed by dealers fell in the first quarter, down as much as 15% year over year in March.

So what you’re seeing in the increase in auto loan balances are two big factors going in opposite directions, with the ridiculous price hikes winning the game:

  • Slump in the number of vehicles sold
  • A ridiculous increase in vehicle prices.

So that’s the status of America’s debt slaves: they have to borrow a lot more to fund the purchases of a lot less because everything has gotten so much more expensive thanks to this raging inflation.

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